Why Obama’s myRA Program Isn’t a Savings Revolution

Back in January 2014, President Obama unveiled an ambitious new program designed to help Americans save more for retirement. Dubbed a myRA – short for “my retirement account” – the idea was to make it easier for people to save for the future. “It’s a new savings bond that encourages folks to build a nest egg,” the President explained during his State of the Union address. “myRA guarantees a decent return with no risk of losing what you put in.”

So, has the myRA revolutionized the way Americans save for retirement? Not exactly. The Treasury Department opened up myRA enrollment in December 2014, but it won’t say how many people have actually signed up, InvestmentNews reported. As of now, individuals can’t open myRAs on their own – they need to work for an employer who has set up direct deposit payroll deductions. Currently, part-time and seasonal employees with the federal government’s Office of Personnel Management are eligible to participate, but it’s not clear how many other employers have signed on, if any.

The slow roll out for myRAs may not be a bad thing, especially after all the bad press that came with the botched debut of the health care exchanges. “They’re dealing with people’s money, so they want to make sure they get all the bugs out to handle the expected volume coming,” David John, a senior policy analyst at AARP, told CNBC. “I expect there will be substantial use of the program once it’s fully rolled out.”

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The bigger issue may be whether myRAs really are a viable solution to America’s retirement savings crisis. The concept seems like a good one, at least on the surface. Twenty-one percent of employers don’t currently offer any kind of retirement plan to employees, according to research from the Transamerica Center for Retirement Studies; less than half allow part-time workers to enroll in a plan. While people can set up traditional or Roth IRAs if they are motivated to save, that requires a fair amount of work. Many account custodians also require minimum deposits of $1,000 or more to open an account. For people who are just getting started saving, that can be a lot of money.

A myRA, on the other hand, costs nothing to open and monthly recurring deposits can be as little as $2 (people can save up to $5,500 per year). Savers pay no investment fees and don’t have to worry about their account losing value, since the money will be invested in U.S. Treasury Securities. With only one investment option, people won’t have to navigate a potentially confusing landscape of options, as they do with 401(k)s and IRAs. And because the account is structured like a Roth IRA, they can withdraw their contributions without penalty at any time.

But security and simplicity comes at a price. All myRA deposits will be invested in a fund that had an average annual return of 3.19% over the past 10 years – barely enough to keep up with inflation. Once a myRA account balance reaches $15,000, savers will have to roll over the money into a Roth IRA, which will have more investment options. But reaching that level may take a while, especially if people are only saving small amounts and earning tiny returns.

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Though some retirement experts have criticized the lack of investment options and low returns, myRA proponents say that the goal is to get people who would not otherwise save – and who may be suspicious of more complicated investment vehicles – to start building a nest egg. “How do you get people to get their toe in the water in the system if the financial brokerages don’t want the small accounts?” William Gale, director of the Retirement Security Project at the Brookings Institution, told CNN. “This is a way of bridging that gap, getting people going so that they get familiar with saving.”

For myRAs to be successful, employers need to get on board and encourage people to sign up. Right now, workers can request that their employer sign up to offer direct deposit for myRAs, a process that is simple and free. Yet some people may be hesitant to ask for a favor or put an additional burden on their boss. The Treasury Department says that other ways will be available to contribute to myRAs in the future.

But there is an even bigger obstacle that may be standing in the way of myRA’s success. The people who the accounts are meant for may not have any extra money to put away. “People don’t have money to save,” Lance Roberts, chief executive at STA Wealth Management said in the Wall Street Journal. “If they had money to save, they would be — and they are — taking advantage of the options that exist. … What people are lacking is the money to save.”

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Still, myRAs aren’t dead in the water. Sixty-four percent of people surveyed by the Doorways to Dreams Fund said they’d be interested in a government-backed savings account like a myRA. While interest was slightly higher among those with higher incomes and more savings, 62% of those with less than $2,000 saved said they’d be interested in a myRA. But people made it clear they wanted more flexibility in the accounts, like the ability to deposit tax refunds and a mobile app that would allow them to track balances.

Source: Doorways to Dreams Fund

One potential area of concern: While 54% of people said they’d use their myRA for retirement savings, 47% said they were likely to use it for more general savings purposes. If people end up using a myRA more like high-interest savings account than a retirement account, it may end up doing little to alleviate the retirement savings problem in America.